Jon Griffith | Price is Negotiated on the Front End

Price is Negotiated on the Front End

Price is Negotiated on the Front End

There are many points along the residential real estate transaction that are open for negotiation.  One misconception that many buyers may have is that they can go in with a higher price than their competition to beat them, then use the inspection period to bring the sales price down by leveraging the repairs against the seller.

Here’s the thing.  While the sales price can be modified at any point by agreement (i.e. on an addendum), your offer/counter-offer time-line expires when the seller signs the offer.  All you have now are contingencies to let you back out of the purchase.  So, you, as the buyer, have very little say over the price after you’ve inspected the home.  What you do have is the right (depending upon the contract terms) to cancel the contract and walk away with your earnest deposit.

When a home needs repairs, you have one opportunity prior to the end of the inspection period to make the seller aware of what you disapprove of, both warranted, and non-warranted items (remember, some items are to be fixed per the Seller Warranty regardless.)  This notification is done using a document called the [download id=”56411″].

Often a buyer might use language such as, “Seller to credit buyer $5000.00 in lieu of repairs.”

This is a red flag for lenders.  Lenders don’t want to see anything about repairs, because they don’t want to lend on a property that may have liabilities.  Credits are typically handled on the front end, prior to reaching an agreement on the sale price.  But, if there is language added that says something to the effect of “Seller to credit Buyer $5000.00,” the BINSR is NOT the place to do it.  This must be done on an addendum, and even that can pose problems, because the credits provided by the seller can only cover closing costs.  So, if the seller is willing to provide a $5,000 credit, they might as well lower the price by $5,000.

Let’s use a buyer under contract at $200,000 with a seller who agreed to pay 3% towards closing costs as an example.  The seller is allowing $6,000 to be allocated to the buyer’s closing costs.  During the inspection period, the seller elects to credit the buyer $5000.00 instead of repairing the disapproved items that the Buyer points out.  Now we have $11,000 in credits, but closing costs won’t be that high, so we have nowhere to put that money, except back into the seller’s pocket.

While the buyer may be attempting to use the BINSR to leverage a price reduction, the BINSR is designed to be used to notify the seller of disapproved items.  Nothing more.

Until a buyer receives a response from the Seller regarding their intentions after being notified of disapproved items, they have only two options.  1.  Either continue with closing without any repairs being completed, or 2. bail out and receive the earnest funds back from bondsman denver co and start searching again.

The outcome of the inspection contingency is going to vary depending on market conditions.  If it’s a Seller’s market, there may be multiple offers on the property, in which case the buyer has less leverage throughout the entire transaction.

Don’t bank on repairs to lower the price of the home you intend to purchase.  It can be done, but it’s the Seller who holds the ball.  If the seller is desperate to sell, then they may simply lower the price, rather than go back on the market, but if they have multiple offers, then they may be willing to close at a higher price with another buyer without making concessions.






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